GAO-17-457, ARMY CONTRACTING: Leadership …

June 2017

United States Government Accountability Office

Report to Congressional Requesters

ARMY CONTRACTING

Leadership Lacks Information Needed to Evaluate and Improve Operations

GAO-17-457

Highlights of GAO-17-457, a report to congressional requesters

June 2017

ARMY CONTRACTING

Leadership Lacks Information Needed To Evaluate and Improve Operations

Why GAO Did This Study

In recent years, GAO and other organizations have raised concerns about Army contracting operations, which directly affect a wide range of Army activities. In fiscal year 2016 alone, the Army obligated more than $74 billion through contract actions.

GAO was asked to examine the Army's contracting operations. This report assesses the extent to which Army leaders have evaluated (1) the efficiency and effectiveness of contracting operations and (2) the effects of organizational changes on contracting operations.

GAO reviewed reports on Army contracting commissioned by the Secretary of the Army and an ASA(ALT); ASA(ALT) memos; Army guidance reorganizing AMC; and Army-wide contracting oversight briefings from fiscal years 2015 and 2016. GAO also interviewed personnel in the Office of the ASA(ALT), at AMC, and other contracting organizations.

What GAO Recommends

GAO is making eight recommendations to improve the Army's contracting operations such as: developing metrics to assess contracting operations for timeliness, cost savings, and contractor quality; documenting rationales for key decisions; and establishing measurable objectives to assess the effects of organizational changes on contracting operations. The Army generally concurred with GAO's recommendations, but did not agree to establish a contractor quality metric because contracting organizations cannot control all variables that affect quality. GAO continues to believe this action is needed as discussed in the report.

View GAO-17-457. For more information, contact Marie A. Mak at (202) 512-4841 or MakM@.

What GAO Found

Top Army leaders conduct department-wide contracting reviews, but they have not consistently evaluated the efficiency and effectiveness of the department's contracting operations. Instead, they have primarily focused on efforts to obligate funds before they expire, as well as competition rates and small business participation. In 2014, one of the Army's key strategic planning documents established that contracting operations should adhere to schedule, cost, and performance objectives, but Army leaders have not established the timeliness, cost savings, and contractor quality metrics needed to evaluate contracting operations against such objectives. Without adequate metrics, Army leaders will not have the information needed to determine whether Army contracting operations are meeting the department's objectives. Since 2012, Army leaders, including successive Assistant Secretaries of the Army (Acquisition, Logistics and Technology) (ASA(ALT)), have acknowledged a need for improvements in contracting and have taken positive intermittent steps, but GAO found that these leaders did not sustain the efforts or--alternately--provide a rationale for not doing so. GAO has previously found that leadership must provide clear and consistent rationales to effectively drive organizational transformations. If Army leadership does not document its rationale for key decisions, the Army's contracting organizations may be missing critical information to effectively improve operations going forward.

Top Army leaders have not evaluated the effects of major organizational changes on contracting operations despite repeatedly changing reporting relationships across contracting organizations since 2008, when the Secretary of the Army created the Army Contracting Command. The number of changes has increased since 2012, with five major changes in 2016.

Number of Major Organizational Changes Affecting Army Contracting Operations, 2008-2016

Some Army leaders made organizational changes to centralize contracting decision-making, while others made changes intended to improve support to field operations. When Army leaders made these changes, they did not establish measurable objectives in accordance with federal standards for internal control, and officials from eight different Army organizations told GAO that the numerous changes disrupted contracting operations and caused confusion. Further, GAO found that disagreements over the associated risks and benefits have increased tensions among officials in the ASA(ALT) office and at the Army Materiel Command (AMC). In the absence of measurable objectives and authoritative data, it is unclear whether the benefits of the changes outweighed the costs to implement them.

United States Government Accountability Office

Contents

Letter

Appendix I Appendix II Appendix III Tables Figures

1

Background

3

Top Army Leaders Conduct Department-wide Contracting

Reviews, but They Have Not Consistently Evaluated the

Efficiency and Effectiveness of Contracting Operations

8

Army Leadership Has Not Evaluated How Major Organizational

Changes Have Affected Contracting Operations, and

Competing Leadership Visions Have Increased Tensions

20

Conclusions

27

Recommendations for Executive Action

28

Agency Comments and Our Evaluation

29

Objectives, Scope, and Methodology

32

Comments from the Department of the Army

36

GAO Contact and Staff Acknowledgments

41

Table 1: Army, Air Force, and Navy Contracting Workforces,

Fiscal Years 2007 to 2016

15

Table 2: Organizations Included in the Scope of our Army

Contracting Review

33

Figure 1: The Contracting Life Cycle

4

Figure 2: Army Contracting Organizational Structure

6

Figure 3: Contract Execution across Army Organizations from

Fiscal Year 2011-2015

7

Figure 4: Major Changes Army Leaders Made to Reporting

Relationships across the Department's Contracting

Organizations, 2008-2016

21

Figure 5: Army Materiel Command's Contracting Organizations in

October 2007 and December 2016

23

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GAO-17-457 Army Contracting Leadership

Abbreviations

ACC AMC ASA(ALT)

CER CPARS DASA(P) HCA LCMC MEDCOM OPORD NGB PALT PARC PEO USACE

Army Contracting Command Army Materiel Command Assistant Secretary of the Army (Acquisition, Logistics

and Technology) Contracting Enterprise Review Contractor Performance Assessment Reporting System Deputy Assistant Secretary of the Army (Procurement) Head of Contracting Activity Life Cycle Management Command U.S. Army Medical Command Operation Order National Guard Bureau Procurement Action Lead Time Principal Assistant Responsible for Contracting Program Executive Office U.S. Army Corps of Engineers

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GAO-17-457 Army Contracting Leadership

441 G St. N.W. Washington, DC 20548

Letter

June 22, 2017

The Honorable Claire McCaskill Ranking Member Committee on Homeland Security and Governmental Affairs United States Senate

The Honorable William M. "Mac" Thornberry Chairman The Honorable Adam Smith Ranking Member Committee on Armed Services House of Representatives

The Army relies extensively on its contracting operations to execute its mission. In fiscal year 2016 alone, the Army obligated more than $74 billion on contracts to acquire a wide range of products and services, including combat vehicles, aircraft, radios, missiles, ammunition, logistics support services, healthcare, and administrative services.

In recent years, the Army has faced challenges in executing its contracting operations. Specifically, in October 2015, we found that the Army had extensively used bridge contracts--extensions to existing contracts or new, short-term sole source contracts to incumbent contractors to avoid a gap in service when an existing contract is set to expire but the follow-on contract is not ready to be awarded.1 These sole source contracts effectively decreased competition and increased the risk that the government was paying too much. We subsequently issued a management letter to the Executive Director responsible for the contracts and recommended training to contracting officers about the appropriate use of bridge contracts.2 The Department of Defense concurred with our recommendation and indicated that the Army would issue guidance reminding contracting professionals about the proper use of bridge contracts, but the department has not yet taken the actions necessary to address the recommendation. Separately, in December 2015, we found

1GAO, Sole Source Contracting: Defining and Tracking Bridge Contracts Would Help Agencies Manage Their Use, GAO-16-15 (Washington, D.C.: Oct. 14, 2015).

2GAO, Army Contracting: Training and Guidance Needed to Ensure Appropriate Use of the Option to Extend Services Clause, GAO-16-262R (Washington, D.C.: Jan. 28, 2016).

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GAO-17-457 Army Contracting Leadership

that the Army Materiel Command (AMC) did not have enough contracting professionals due to several cost-cutting actions taken by the Army since fiscal year 2011 to implement mandated reductions and caps on future spending.3 We made four recommendations to ensure that the Department of Defense has the right people with the right skills to meet future needs. The department concurred with all four recommendations but has not yet addressed them. Moreover, a 2013 report on Army contracting issues, commissioned by the Office of the Assistant Secretary of the Army (Acquisition, Logistics and Technology) (ASA(ALT)), identified concerns about inconsistent levels of customer service, redundant activities, and inconsistent organizational structures, among other things.4

Given these challenges, you asked us to examine the Army's contracting operations. This report assesses the extent to which Army leaders have evaluated (1) the efficiency and effectiveness of contracting operations and (2) the effects of organizational changes on contracting operations.

In order to assess the extent to which Army leaders have evaluated the efficiency and effectiveness of contracting operations, we reviewed key oversight documents including Contracting Enterprise Review (CER) briefings and Annual Summary Health Reports. CER briefings provide the Army's senior contracting leaders with information about the Army's contracting organizations, such as the number of contract actions they execute, obligation and competition rates, and small business participation; while Annual Summary Health Reports assess the extent to which these organizations comply with federal, defense, and Army contracting regulations. We determined that the data contained in the CER briefings were not sufficiently reliable for examining the Army's contracting operations, and our discussion of CER data focuses on these limitations. We also reviewed all of the action items resulting from those CER briefings, strategic guidance such as the Army Campaign Plan, and the Army's Federal Acquisition Regulation Supplement. We also interviewed personnel responsible for overseeing Army contracting operations in the Office of the ASA(ALT), including the ASA(ALT)'s Principal Military Deputy, the Deputy Assistant Secretary of the Army

3GAO, Defense Acquisition Workforce: Actions Needed to Guide Planning Efforts and Improve Workforce Capability, GAO-16-80 (Washington, D.C.: Dec. 14, 2015).

4Censeo Consulting Group, Army Contracting Organization: Structure and Authorities (July 2013).

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GAO-17-457 Army Contracting Leadership

Background

(Procurement) (DASA(P)), and the acting Deputy Assistant Secretary of the Army (Plans, Programs, and Resources); AMC leadership, including the Deputy Commander of AMC and the Deputy Commander of the Army Contracting Command (ACC); Heads of Contracting Activity (HCA) at the National Guard Bureau (NGB), the U.S. Army Corps of Engineers (USACE), and the U.S. Army Medical Command (MEDCOM); seven Principal Assistants Responsible for Contracting (PARC); and individuals responsible for executing contracting operations throughout the Army.

In order to identify the extent to which Army leaders have evaluated the effects of organizational changes on contracting operations, we reviewed the Gansler Commission report on Army contracting issued in 2007, a 2013 report on Army contracting commissioned by the ASA(ALT), and documentation of Army decisions to change organizational structures.5 We also interviewed contracting professionals and senior leaders in the Office of the ASA(ALT), ACC, NGB, USACE, and MEDCOM; and requirements generators from eight additional organizations: three Life Cycle Management Commands (LCMC), and five Program Executive Offices (PEO).

We conducted this performance audit from May 2016 to June 2017 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

The Army awards and administers contracts much like the rest of the federal government, adhering in broad terms to a generic contracting life cycle and the Federal Acquisition Regulation. Figure 1 depicts the contracting life cycle.

5The Gansler Commission Report on Army Acquisition and Program Management in Expeditionary Operations, Urgent Reform Required: Army Expeditionary Contracting (Oct. 31, 2007); and Censeo Consulting Group, Army Contracting Organization: Structure and Authorities (July 2013).

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Figure 1: The Contracting Life Cycle

Throughout the contracting life cycle, three key groups have a role in meeting the Army's needs: requirements generators, contracting professionals, and contractors themselves.

? Requirements generators are often located in PEOs or LCMCs. PEOs are responsible for large acquisition efforts involving major weapon systems, while LCMCs are responsible for sustaining many of these systems once they have been deployed. Within their respective areas of responsibility, both define requirements in documents such as statements of work, conduct market research, develop cost estimates, and produce written acquisition plans, as necessary. An Army official told us they can also participate in the source selection process and can serve as contracting officers' representatives, monitoring contractors' performance on behalf of the government.

? Contracting professionals such as contracting officers use information submitted by requirements generators to determine the type of contract the Army should award and how best to meet competition requirements. They also develop and publish solicitations requesting proposals from contractors, and, after receiving these proposals, they negotiate with contractors, as appropriate, and lead the source selection process. After contract award, contracting professionals ensure contractors comply with contractual quality assurance requirements and submit required reports in a timely manner, among other things. They also closeout the contract, which involves verifying that products and services were provided and making final payments to contractors.

? Contractors are responsible for delivering products and services to the Army in accordance with the terms of the contract. These products and services can include major weapon systems, complex research and development activities, and day-to-day administrative support, among other things.

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